Have You Checked Your Credit Report? If you haven’t, you should.
By James R. Cook, CFP®
Senior Manager, Large Employers & Mergers and Acquisitions
Why it’s Important
When companies offer you credit, they start by reviewing your credit history. That is also something that you should do on at least an annual basis, and probably anytime you are preparing to make a significant purchase such as a home or car.
Most of us see advertisements from banks, auto dealerships or other institutions listing attractive loan rates. What you probably do not notice is a small footnote that indicates this rate is the lowest rate that is made available only to highly qualified buyers. “Highly qualified” means that you have an above average history of using credit. If you do not meet theses qualifications, it does not mean that you will not get a loan, but it does mean that the advertised rate of 3% for that new car may be 8% for you.
Getting your Report
There are three credit reporting agencies, Equifax, Experian, Trans Union. Different companies seeking information on your credit will generally use one of these agencies to review your credit. In an ideal world, other than format, your credit history should be identical at all three. If you have never reviewed your credit reports before, a good place to start is to get all three of them at once. The law requires the agencies to provide you with one free report each year. You can start the process at the government website: https://www.usa.gov/credit-reports. This site provides useful information about your credit reports, links to get the actual reports, and important information about your legal rights and corrective measures to take if you believe it contains errors.
Once you receive your report you will note that it lists all of your current credit accounts including accounts that you closed in the last few years. For each of the accounts there will be a history of payment timeliness, noting if you have paid on time or been late. You will also see current balances and total credit limits.
Reviewing Your Report
You should focus on two key things as you start this process: First, take the big picture view — Are these your accounts? You should see an entry for every account that you are aware of. If there is an account that does not look familiar, you should immediately investigate. It could be that someone has fraudulently opened an account in your name, or it could be that through the credit reporting process someone else’s account is erroneously appearing on your report. Second, you want to make sure that the reported information for each of your accounts is accurate. Does the payment history look correct? Any anomalies or errors need to be clarified immediately. The agencies’ websites will explain the process of reporting errors.
Monitoring Your Credit
Once you have checked all three of your reports for accuracy, you will want to repeat the process on a regular basis. If everything checks out the first time, you can wait a year until you are eligible for another free round of reports. To keep a closer eye on your reports, spread your requests out the following year by ordering a report from only one agency at a time, and spreading the request out every four months, e.g. Equifax in January, Experian in May and Trans Union in September. That way you will see your credit history every four months and have a better chance of catching and correcting errors early. If you have shared credit with your spouse, you can alternate between your reports, and get one every two months.
Next month we will look at the related topic of your Credit Score, and the steps you can take to improve it.